Is a service that lets customers send large volumes of email, plus related consulting, subject to New York sales tax?

Plain-English summary

A company provides a bulk email-sending service: customers use the provider's infrastructure to send large volumes of email (marketing emails, transactional SMTP emails, API-driven sends, or via plug-ins for platforms like WordPress), billed by the number of emails. Customers get back delivery statistics (opens, clicks, bounces). The company also sells separate consulting (account setup, list management, deliverability strategy) delivered orally by phone or video. It asked whether the email service and consulting are taxable.

The Office of Counsel concluded neither is taxable. Under the primary function test, the core of the offering is letting customers remotely send email, an email service that the federal Internet Tax Freedom Act bars states from taxing. The free plug-ins and wrappers are prewritten software but are provided at no charge and are integral to the email service, so they don't change the result. The campaign-result reports are an information service that is personal and individual to each customer (not resold to others), so they're not taxable. Dedicated IP addresses are exempt internet access (ITFA; Tax Law § 1115(v)). And the consulting (oral advice) is not an information service, so it's not taxable either.

What this means for you

Email-platform and messaging providers

A service whose primary function is sending email is generally non-taxable in New York under the ITFA, even when you provide free software components or return analytics to the customer. Keep components free/incidental and reports personal-and-individual.

SaaS providers generally

The primary-function test can shield an offering even if it includes software elements, as long as those elements are incidental to a non-taxable core service.

Accountants and tax professionals

Layered analysis: ITFA preemption of email/internet access; primary-function doctrine (Penfold); free incidental software doesn't taint; personal-and-individual information service exclusion (TSB-A-13(30)S; TSB-A-12(19)S; TSB-A-03(42)S); oral consulting not an information service (TSB-A-08(18)S); dedicated IP as internet access (§ 1115(v)).

Common questions

Q: Why isn't this taxable software or an information service?
A: Its primary function is email, which the federal ITFA protects from tax. Software components are free/incidental, and the reports are personal to each customer.

Q: Are the delivery-statistics reports taxable?
A: No, because the information is personal and individual to the customer and isn't substantially incorporated into reports furnished to others.

Q: Is the consulting taxable?
A: No. Oral advice on setup and strategy is not a taxable information service.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your own facts.

Citations and references

Statutes and guidance:
- Tax Law § 1105(c)(1), (9); § 1115(v); Internet Tax Freedom Act (47 USC § 151 note)
- Penfold v. State Tax Comm'n, 114 AD2d 696 (3d Dep't 1985); TSB-A-13(30)S; TSB-A-12(19)S; TSB-A-03(42)S; TSB-A-08(18)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales-ao-2020.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a20-30s.pdf

Original ruling text

New York State Department of Taxation and Finance
Office of Counsel

TSB-A-20(30)S
Sales Tax
July 14, 2020

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
The Department of Taxation and Finance received a Petition for Advisory Opinion from
[ REDACTED ] (“Petitioner”). Petitioner asks whether its e-mail and consulting services are
subject to State and local sales taxes.
We conclude that Petitioner’s e-mailing and consulting services are not subject to New
York sales tax.
Facts
Petitioner provides e-mailing services to its customers, which includes the ability to send
large volumes of e-mails using Petitioner’s infrastructure. Petitioner charges its customers based
upon the number of e-mail credits they purchase per month. Petitioner has a free plan that allows
customers to send up to 12,000 e-mails/month, and paid plans that allow up to 30,000, 120,000,
350,000, 750,000, or 2,500,000 e-mails/month. Petitioner offers custom plans for customers
who wish to send more than 2.5 million e-mails/month. If customers exceed their monthly limit,
they are charged an overage fee per each additional e-mail sent. There are additional optional
features for which a customer will pay an additional charge (e.g., multiple dedicated IP
addresses, campaign comparison tools), but the core product being sold is the ability to send
large quantities of e-mails and receive data back regarding such transmissions. Petitioner’s
customers are solely responsible for the content of the e-mails.
Customers utilize Petitioner’s e-mailing services in 4 different ways:
1. Marketing E-mails:
Marketing E-mails is a cloud-based service and no downloaded software is installed on a
customer’s machine. Customers sign up via Petitioner’s website and set up an account there.
Customers create a contact list either by electronically uploading their relevant data to the
website or by adding contacts to their account using an application program interface (API).
Then, customers can either use one of Petitioner’s HTML templates or upload HTML code of
their own, select which recipients they want to send e-mails to, and then instruct Petitioner’s
servers to send the desired e-mails. Petitioner’s servers, which are based outside the United
States, process the e-mails and then send e-mails to the desired recipients.
2. SMTP (simple mail transfer protocol) E-mails:
Similar to the Marketing E-mails, Petitioner’s customers can sign up for Petitioner’s
services via Petitioner’s website and set up an account there. After a customer has created an

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Sales Tax
July 14, 2020

account, Petitioner provides the customer a username and password and then the customer can
take certain credentials and put them into their own website's code. The customer defines what
the e-mails will look like (e.g., a forgotten password or e-mail for a purchase receipt e-mail) and
sends that data to Petitioner, and then Petitioner sends the e-mails to designated recipients.
3.

API (application programming interface) E-mails:
Petitioner’s customers sign up for an account via Petitioner’s website. After customers
create an account, Petitioner provides the customers with API credentials, which operate
similarly to a username and password. Petitioner explains that an API effectively allows
customers to communicate with Petitioner’s technology without having to go to Petitioner’s
website (i.e., customers can create code on their own system that tells Petitioner’s system to add
a contact or send an e-mail rather than going to Petitioner’s website itself to instruct Petitioner’s
system). To use an API, a customer needs what Petitioner calls a “wrapper” in order for the
customer to be able to communicate with Petitioner’s technology. Petitioner creates wrappers
that can be downloaded, free of charge, by customers to accommodate the different
programming languages customers use.
4.

Plug-In E-mails:
Some customers use non-typical content management systems (e.g., Joomla or
Wordpress) for their websites. For these systems, Petitioner created “plug-ins” that allow
Petitioner’s technology to be used by these customers to send e-mails via those platforms.
Customers download Petitioner’s plug-in, free of charge, and install it on their own sites. After
inputting their credentials into the plug-in, the customer would then be able to send e-mails using
Petitioner’s servers.
Regardless of which method customers use to utilize Petitioner’s e-mailing services,
customers enter into a Service Agreement with Petitioner. The Service Agreement indicates that
customers remotely send e-mails using Petitioner’s systems. The Agreement describes
Petitioner’s services as providing customers “emailing campaigns with real-time monitoring of
sent e-mail deliverability” and “sending and managing, transactional e-mails.” The Agreement
also specifies that the Petitioner is to:
“ensure that emails sent by [customers] are properly routed to their recipients’
electronic mailboxes. To this end, [Petitioner] shall provide [customers] with an
online automatic monitoring service, enabling [customers] to update and modify
[their] mailing lists and emailing campaigns in real time.”
Petitioner’s systems allow customers to see statistical results of what recipients did with
the e-mails they sent (e.g., opened, clicked, undeliverable, etc.).
Consulting Services
Petitioner also provides certain consulting services to customers.
Petitioner charges
separately for these consulting services. Some of Petitioner’s larger customers have greater

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July 14, 2020

needs related to avoiding sent e-mails being designated as spam by recipients’ systems. In this
regard, Petitioner offers services that assist customers with setting up their accounts correctly,
managing massive contact lists, and developing e-mail strategies. Petitioner has experts on staff
that will engage with customers, typically over the phone or by video-conference, and help them
with their specific needs. Petitioner’s personnel that provide these services are located outside
the United States.
Analysis
The Service Agreement between Petitioner and its customers emphasizes that Petitioner’s
service allows its customers to remotely send e-mails using Petitioner’s platform. This is further
reinforced by the fact that, aside from separate consulting services and access to multiple IP
addresses, Petitioner bills its customers entirely based upon the quantity of e-mails sent.
The federal Internet Tax Freedom Act (PL 105-277, 114-125) (“ITFA”) became
permanent on February 24, 2016. ITFA expressly prevents states from taxing internet access
services. See 47 USC § 151, note § 1101(a)(1). Internet access service is defined as “a service
that enables users to access content, information, electronic mail, or other services offered over
the Internet and may also include access to proprietary content, information, and other services
as part of a package of services offered to consumers.” 47 USC § 151, note § 1101(a)(3)(D).
ITFA also provides that non-taxable internet access includes “homepage, electronic mail and
instant messaging … that are provided independently or not packaged with [other] Internet
access.” 47 USC § 151, note § 1105(5)(E).
Integrated services are to be taxed according to their primary function. See Penfold v
State Tax Commission, 114 AD 2d 696 (3d Dep't 1985). Here, the primary function of
Petitioner’s service is to allow customers to remotely access its servers in order to send large
quantities of e-mails in an effective manner. This service constitutes an e-mail service and,
therefore, is not taxable pursuant to ITFA.
In some cases, Petitioner provides plug-ins or wrappers to its customers in order to allow
the customer’s websites and systems to communicate with Petitioner’s e-mail platform. While
plug-ins and wrappers may constitute prewritten computer software, here they are provided free
of charge in order to allow the customers to effectively use Petitioner’s e-mail service. Because
we conclude that the primary function of Petitioner’s service is e-mailing, and the plug-ins and
wrappers are integral to the provision of that service, the plug-ins and wrappers provided free of
charge do not affect the non-taxable nature of the e-mail service and are not subject to sales tax.
Petitioner’s customers receive a written or online report of the e-mail campaign results,
including the statistical results of the e-mails they sent. While these reports qualify as
information services under Tax Law § 1105(c), the information provided is considered personal
and individual in nature and will not be subject to sales tax, so long as that information is not
substantially incorporated into reports furnished to other persons. See TSB-A-13(30)S; TSB-A12(19)S; TSB-A-03(42)S.

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Petitioner separately charges customers an additional fee for multiple dedicated IP
addresses. These IP addresses can bifurcate from where a customer sends different e-mails and
thus can provide an additional level of customization and potential analysis. Establishing one or
more IP addresses to which e-mail can be directed is considered an internet access service
exempt from sales tax under ITFA and Tax Law § 1115(v).
Petitioner’s Consulting Services consist of assisting customers with setting up their
accounts correctly, managing large contact lists, and developing e-mail strategies. Such advice is
provided orally by telephone or by video-conference. These services are not considered
information services under Tax Law § 1105(c)(1) or (9), and, thus, are not subject to sales tax.
See TSB-A-08(18)S.
DATED: July 14, 2020
/S/
DEBORAH R. LIEBMAN
Deputy Counsel
NOTE:

An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the
person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued or
for the specific time period at issue in the Opinion. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.